Indian Startups: Getting High on Proposals and Low on Implementation

Indian government proposals to give a boost to startups are not being implemented fast enough. The government is high on proposals but slow on implementations.

Economic Times reports that the limit on sweat equity for startups could be raised to 50% from 25% of paid up capital, improving the incentives for innovators and giving a boost to the Startup India initiative. A committee set up by the government to review issues arising out of implementation of the Companies Act, 2013 has suggested changes to improve ease of doing business, encourage startups and harmonise various laws. The committee in its report has suggested that the government may also allow issuance of ESOPs to promoters working as employees or whole time directors of startups, which would help promoters to gain from increase in future valuation. 

"Sweat equity limit for startups may be raised to 50% of capital". The Companies Act, 2013 currently restricts issue of ESOPs to promoters or promoter directors even if they are employees of the company. With a view to ease raising of funds for startups without additional compliance costs, the limits with regard to raising of deposits from members for 'startup' companies may be removed for the first five years from their incorporation. At present, private companies are permitted to accept deposits from their members which do not exceed 100% of their paid-up capital and free reserves. "Major amendments have been recommended to Companies Act 2013 to encourage startups. An overhaul of the Act in tandem with government's Start-Up India vision is likely to be done soon," said Anshul Jain, partner at law firm Luthra & Luthra Law Offices. 

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